As workers wade through their health benefit offerings during this open enrollment season, employers and health insurance companies have been mired in tough negotiations with providers behind the scenes.
Premiums for employer-sponsored health insurance were 7% higher on average in 2023—outpacing inflation and wage growth—than the year before, at $23,968, according to survey results KFF published last month. The underlying causes aren't abating, which has significant financial implications for providers, insurers, employers and the 153 million U.S. residents whose health coverage comes from jobs.
The employer-sponsored insurance market arrived at this moment for a plethora of reasons. Insurers aren’t renewing multi-year contracts with providers, healthcare workers are demanding better pay, workforce shortages are worsening and utilization of some services has rebounded after patients delayed care during the worst stretches of the COVID-19 pandemic.
“The entire healthcare industry right now is facing pricing pressures. You see it in the headlines with the various [health] systems and their labor costs going up. We certainly see that passing through to us in the reimbursement discussions that we're having,” said Scott Burton, commercial market president for Providence Health Plan, a nonprofit health insurance company owned by Renton, Washington-based Providence Health and Services.
The major sticking point over health benefit costs in 2024 is that providers, beset by higher costs for staffing and other headwinds and beleaguered by the pandemic, have insisted on higher reimbursements.
“Hospitals suffered significant financial loss for several years, and they're looking at more of trying to get into increases that they can sustain keeping their doors open,” said Regina Ihrke, a health and benefits consultant at WTW, the business services company formerly known as Willis Towers Watson.
This dynamic forces employers to find a balance between keeping premiums down and offering quality health plans with broad provider networks.
“You're finding that when those contracts are expiring, the insurance carrier says, ‘I want to pay you 3% more,’ and [providers] are saying, ‘We need 10% more.’ So you're seeing a real battle there,” said John Crable, senior vice president and benefits consultant for Corporate Synergies, which advises employers.
A growing number of standoffs between payers and providers have spilled into public view and remain unresolved. FTI Consulting counted 74 this year through Nov. 2, compared with 33 in 2022, according to data the company shared with Modern Healthcare. Eighteen have not been settled.
“The total numbers might not be a lot, but each one of these disputes does represent thousands to tens of thousands of covered lives,” said Adam Broder, a managing director at FTI Consulting.
And even as workers at many companies are in the process of making benefit selections for next year, some employers can’t even provide workers with complete provider network lists because of protracted negotiations.
In North Carolina, UNC Health is sparring with UnitedHealthcare over reimbursements for commercial insurance and Medicare Advantage. If they don’t come to terms by April, the Chapel Hill-based nonprofit academic health system will stop accepting UnitedHealthcare plans, Chief Clinical Officer Dr. Matthew Ewend wrote in a letter to patients last month.
“We wanted to give you this information now so you can consider other plans that offer in-network access to UNC Health during this year’s open enrollment season,” Ewend wrote. UNC Health, affiliated with the University of North Carolina, is seeking higher reimbursements and a lighter administrative burden from the insurer, a health system spokesperson wrote in an email.
UnitedHealthcare counters that giving the health system what it wants would drive up costs for employers and patients by $570 million, a spokesperson for the UnitedHealth Group subsidiary wrote in an email.
"We will remain at the negotiating table as long as it takes to reach an agreement. We urge UNC Health to join us there and deliver a realistic proposal that is affordable for North Carolina families and businesses," the spokesperson wrote.
Elevance Health subsidiary Anthem Blue Cross is engaged in similar talks with Oakland-based University of California Health. The insurer and the nonprofit academic health system extended their contract to March 1 as they continue talks to settle fee levels.
“Oftentimes, those issues get resolved and settled, but it's an ugly, very public battle while it’s taking place,” Crable said.
Affordability is on the front burner for employers grappling with how to manage health benefit spending, said Jean Abraham, professor in the division of health policy and management at the University of Minnesota School of Public Health.
To constrain costs, employers increasingly have adopted strategies such as assembling narrow networks of lower-cost providers, steering workers to providers designated as high-performing and limiting prescription drug coverage, even as they respond to employee demand by broadening mental health benefits.
Likewise, health insurance companies are testing ways to make care more convenient as costs rise. For example, Providence Health Plan will eliminate referral requirements for in-network specialists in Oregon and Washington next year.
“Employers and their employees want healthcare to be accessible. I'd say this is probably more important now than ever given provider shortages and the wait times nationwide, and we as health insurers have an opportunity to ease this challenge by adjusting our plan design requirements in the coming year,” Burton said.